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Defendant not allowed to appeal denial of a 12(b)(6) motion to dismiss after trial

The U.S. Court of Appeals for the Tenth Circuit held that a defendant cannot appeal a pretrial denial of a FRCP Rule 12(b)(6) motion to dismiss after the plaintiff has successfully prevailed at trial on the claim at issue because the sufficiency of the allegations in the complaint is irrelevant. ClearOne Communications, Inc. v.Biamp Systems, Case Nos. 09-4097, 10-4090 & 10-4168 (10th Cir., Aug. 8, 2011) (Briscoe, J.).

Plaintiff ClearOne purchased proprietary source code from a third party in 2000. In 2001, one of ClearOne’s employees with knowledge of the source code, and who had signed confidentiality and noncompetition agreements with ClearOne, began working for defendant Biamp. Another defendant, Wideband, then hired the same employee and began licensing the source code to Biamp. As a result, ClearOne filed a complaint for misappropriation of trade secrets under the Utah Uniform Trade Secret Act (UUTSA), among other claims. A jury awarded ClearOne $956,000 in compensatory damages for lost profits and $694,000 for unjust enrichment. Biamp then filed three appeals, addressing five issues.

In its motion to dismiss, Biamp argued that ClearOne failed to state a claim for misappropriation because Biamp lacked knowledge of the proprietary object code that was embedded in the products Biamp was selling. Object code is a sequence of binary number instructions for a computer which are meaningless to a human reader. Biamp only possessed the object code, not the human readable source code or the assembly code. However, the district court denied Biamp’s motion to dismiss because there is no requirement of comprehension of a trade secret to state a claim for misappropriation under the UUTSA. Therefore, there was no requirement that Biamp be able to understand the underlying object code and algorithm for misappropriation. The district court ruled that additional factual development was necessary before it could definitely resolve ClearOne’s misappropriation claim.

After trial, Biamp appealed the district court’s denial of the motion to dismiss. The appeals court held that a Biamp could not appeal the pretrial denial of its 12(b)(6) motion to dismiss after ClearOne had successfully prevailed at trial on the claim at issue. The 10th Circuit explained that because at trial ClearOne proved, not merely alleged, facts sufficient to support relief, the sufficiency of the allegations in the complaint was irrelevant. Accordingly, the court held that after a jury verdict, a defendant must challenge the legal sufficiency of a plaintiff’s claim through a motion for judgment as a matter of law (JMOL). Biamp had filed a JMOL, but it did not reassert in that motion the arguments it made in its 12(b)(6) motion, nor did Biamp appeal the denial of its motion for JMOL.